HOUSTON, June 18 (Reuters) - U.S. oil and gas reserve additions were hit hard by low prices at the end of 2008, but accounting rules forced companies to overstate the real decline, Ernst & Young LLP executives said Thursday.
Charles Swanson, managing partner of the accounting firm’s Houston office, said reserve growth could recover quickly when the economy rebounds, boosting prices and improving the economics of discoveries that had to be taken off the books.
“The physical hydrocarbons are there,” Marcela Donadio, Americas director of oil and gas, said at a briefing on the firm’s 2009 “benchmark study” of 40 companies’ exploration and production performance.
Accounting rules governing company reporting of reserves knocked proven but expensive-to-produce reserves off the books when oil prices plunged from $147 in mid-2008 to $40 at the end of the year, she said.
New bookkeeping rules taking effect at the end of this year could change the picture significantly even if the economic recovery is slower than hoped, Donadio said. “
Ernst & Young’s study of 40 companies’ performance showed their U.S. oil reserves fell 7 percent in 2008 to 15 billion barrels from 16.1 billion barrels in 2007 - not surprising amid talk of “peak oil” but still sobering, the executives said.
The change reflected revisions knocking 1.2 billion barrels of oil reserves off the books because they were uneconomical to produce at $40 a barrel, Donadio said.
The companies’ U.S. natural gas reserves grew but at a slower pace than in 2007, when they increased 12 percent. In 2008, gas reserves grew 4 percent to 145.2 trillion cubic feet (tcf) from 139.9 tcf in 2007.
End-of-2008 revisions knocking 6.7 tcf of gas reserves off the books after prices plunged to less than $6 per million British thermal units from more than $13.
Oil reserve replacement - the amount discovered versus amount produced - fell to minus 7 percent from plus 122 percent in 2007. Gas reserve replacement skidded to 149 percent from 250 percent in 2007, the study showed.
The U.S. exploration and production benchmark study examined the performance of 40 companies accounting for 70 percent of U.S. oil reserves and 61 percent of natural gas reserves, the accounting and consulting firm said.
Revenues surged to $183.3 billion in 2008 versus $135.6 billion in 2007 for the firms surveyed but soaring costs caused operating results to decline to $39.3 billion from $42.8 billion in 2007, the study found.
Proved reserve acquisition costs averaged $16.92 per barrel of oil equivalent (pboe), up 34 percent from $12.67 in 2007. Production costs jumped to $14.72 pboe in 2008, up 25 percent from $11.81 in 2007.
Editing by Lisa Shumaker